Okuzeka
Finance & Banking vocabulary · Treasury & Markets

Forward contract

Meaning in finance & banking, with examples

nounCommon term

In finance & banking, forward contract means: An agreement to buy or sell an amount of currency or another asset on a future date at a price fixed today.

In Turkish: forward sözleşmesi, vadeli döviz alım satım sözleşmesi, vadeli işlem sözleşmesi

How it is used

The most common hedge for exporters and importers, often just called a 'forward'. A company books or enters into a forward contract with its bank. The forward rate is not a forecast: it comes from the spot rate and the interest rate difference between the two currencies. Unlike futures, forwards are private OTC deals that can be tailored.

Example sentences

  1. The importer bought dollars with a three-month forward contract to fix its costs.

  2. Our forward contracts cover about 70% of next year's euro income.

Common collocations

  • FX forward
  • forward rate
  • book a forward contract
  • outright forward
  • non-deliverable forward
  • hedgeTo reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.
  • derivativeA financial contract whose value depends on the price of something else, such as a currency, interest rate, share or commodity.
  • swapA contract in which two parties exchange cash flows or currencies for a period, such as fixed interest payments for floating ones.
  • exchange rateThe price of one currency in terms of another, for example how many Turkish lira you need to buy one euro.
  • foreign exchangeThe buying and selling of currencies, or foreign currency itself. It is often shortened to FX or forex.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Treasury & Markets

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This page explains English vocabulary for learners. It is not financial advice.